How do composite and categorical economic policy uncertainties affect the long-term correlation between China's stock and conventional/green bond markets?

•Impacts of EPU, FPU, MPU, TPU and EXRPU on Chinese stock-conventional/green bond correlations are explored.•Extended DCC-MIDAS model is employed.•The composite EPU strengthens stock-green bond correlation while weakening stock-conventional bond correlation.•The effects of categorical economic polic...

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Bibliographic Details
Published in:Finance research letters 2023-11, Vol.57, p.104148, Article 104148
Main Authors: Guo, Yaoqi, Deng, Yiwen, Zhang, Hongwei
Format: Article
Language:English
Subjects:
Conventional/Green bond
DCC-MIDAS
Economic policy uncertainty
Long-term correlation
Stock
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Summary:•Impacts of EPU, FPU, MPU, TPU and EXRPU on Chinese stock-conventional/green bond correlations are explored.•Extended DCC-MIDAS model is employed.•The composite EPU strengthens stock-green bond correlation while weakening stock-conventional bond correlation.•The effects of categorical economic policy uncertainties (FPU, MPU, TPU and EXRPU) are heterogeneous in terms of size, direction, and significance. Since China's financial market is characterized by an obvious "policy market", this research explores the impact of composite economic policy uncertainty (EPU) and categorical economic policy uncertainty indices (FPU, MPU, TPU and EXRPU) on Chinese stocks and conventional/green bonds based on the extended DCC-MIDAS model. The results show that the composite EPU index strengthens the long-term correlation between stocks and green bonds while weakening the stock-conventional bond correlation. In addition, the effects of FPU, MPU, TPU and EXRPU on long-term correlations are heterogeneous in terms of size, direction, and significance.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2023.104148